mo money, mo decisions
August 26, 2014 12:36 PM   Subscribe

What kind of financial planner do we want? I was referred to a financial planned by someone trusted but he's the kind that takes a percentage of your money each quarter and moves it around. This made me nervous. What options are there?

The financial planner acted a little mortified at my 401K choices. (I did pick the choices when I was about 25 and guessing)
He was going to charge about $4000 a year (a percentage-I think 1%) to manage it.

I'd think I'd prefer someone that just charges me an hourly rate a couple times a year but maybe I'm wrong.

We also have cash saved and a couple houses and want to buy a new house and sell the other two home. I'm not sure how to balance the cash/mortgage. Do we buy in cash? Get a mortgage with cash in the back?

Life insurance... what should we do? We don't have any.

These are the types of questions I have - what type of financial planner do I need? Is there a name for them?
posted by beccaj to Work & Money (10 answers total) 10 users marked this as a favorite
Response by poster: planned = planner... Sorry!
posted by beccaj at 12:37 PM on August 26, 2014

For managing your portfolio there are also all-online ones which ask you a series of questions and then match your age and risk profile to a standard, low cost portfolio. I think they charge a percentage too (but more like 0.5% rather than the 1% which is pretty standard). Here is a link to a bunch of articles reviewing some of them (they call them Robo Advisor for some reason). I have not done extensive research but I like wealthfront the best.
posted by shothotbot at 12:45 PM on August 26, 2014 [1 favorite]

Yes- what you want is a fee-only (not fee-based) planner.

Check out NAPFA which has a directory. Also check out the Garrett Planning Network. They do not all charge by the hour so make sure you find one that does if that is your preference.

For life insurance you probably want term life insurance, not whole life insurance. You're better off handling this separately from your investments since most advisors who sell life insurance are selling whole life insurance, which is a big money-maker for them and not necessarily in your best interest.
posted by matcha action at 12:54 PM on August 26, 2014 [3 favorites]

Correct, a fee-only planner.
posted by fivesavagepalms at 1:11 PM on August 26, 2014 [2 favorites]

For finding life insurance, we had very good (i.e. simple and straightforward) experience with Accuquote. You probably need it if you have kids or if either one of you wouldn't be able to afford the payments on your mortgage(s) on your own.
posted by mr_roboto at 1:20 PM on August 26, 2014

We use a fee-only planner. She did in-depth interviews and a through assesment at the start. That was not a cheapie step, but I think it's well worth the investment.

Your planner will give you some guidance for how much insurance you need (life and otherwise). You can then take those recommendations to your agent.
posted by 26.2 at 1:26 PM on August 26, 2014

Yes, there are absolutely fee for service planners. On top of that, I used to work for a company that you could nominate as your advisor and instead of providing advice we'd refund most of the percentage fee that's built in to pay them. We did provide broker support if you needed a transaction made (free). Not sure if it's set up the same in the US, not all funds charge the same fees; we did work with a number of international companies like ING etc. Worth looking into since there's no point paying for a service you're not using!

(I had a client who asked to have the advisor's fee waived as he didn't need the advice and they tacked it on to the "general management" fee instead. YMMV. It's usually about 0.5%)
posted by jrobin276 at 1:31 PM on August 26, 2014

Keep in mind:

the fee-only financial planner will not manage your investments for you. So that's a different service than what you're looking at. If you don't think you can handle managing the investments yourself (even after paying someone to get the advice on how to manage them), then perhaps you don't want a fee-only planner.

If you think you will be fine following the guidance of the planner to manage your investments, then it's a no-brainer to get the fee-only planner, because the only motivation they have is your best interest, while the type that take a percentage of your funds may be investing based on commissions they receive for selling different investment vehicles (i.e. their own interests).

Hope that is clear. And in case you run into this while searching, be sure not to confuse the fee-only planners with 'fee-based financial planners' because I ran into that myself while I was searching, even though I knew what I wanted was a fee-only planner, I didn't realize that fee-based FP was code for something different (I realized it when I got to the interview and asked the broker directly how he made money).
posted by treehorn+bunny at 4:17 PM on August 26, 2014 [1 favorite]

I think there is a growing consensus that investment advisers who charge 0.5% or 1% of your assets to manage them are virtually certain to underperform someone who goes for low fee index mutual funds. It can also be a pretty sleazy business where your adviser buys you high load mutual funds that provide a kickback to them, which just exacerbates the problem. Get a fee-based planner to help you decide on an asset mix and put them into the lowest cost index funds available in your plan.

They can also help you with the house finance question. Its a pretty straightforward calculation of interest cost vs tax break vs opportunity cost of the money.
posted by Lame_username at 8:58 PM on August 26, 2014

I second matcha action's recommendation for the Garrett Planning Network. I know some folks who tried them out a couple of years ago and are very very happy with the planner they found.

I'd also recommend this quick read about financial planners over at the Bogleheads wiki.

Personally, I strongly encourage you to go with a fee-only planner and stay far away from folks who take a percentage of your portfolio for their fee - I think the evidence shows the fee-based planner route is the most likely to leave you with the highest balance when it comes time to retire.
posted by kristi at 10:23 PM on August 26, 2014 [1 favorite]

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